2/23/2011 @ 6:00PM

Back From The Edge

In the 1990s George Gilder woke the world to the coming explosion in telecom. Then his Gilder Technology Report, published by FORBES, contributed to the telecom stock boom of the late 1990s. It all came crashing down with tech stocks and the collapse of Global Crossing in 2001. A decade later many of his predictions, including the rise of smartphones, have proven correct.

Gilder Technology Group continues to sponsor Gilder Telecosm Forum, a Web-based conference for technology experts and investors. Gilder, a member of the board of directors of Wave Systems Corp. and senior fellow at the Discovery Institute in Seattle, has been contributing to FORBES since 1981. I recently sat down with him to get his take on cloud computing, nanotechnology and poverty pimping in Silicon Valley.

STEVE FORBES: With all this pessimism around, at least give us one good thing that’s happened in the last ten years. You’ve talked about the broadband miracle.

GEORGE GILDER: Well, we sure did. The irony about it is this broadband miracle that’s happened in the U.S. over the last five years or so was totally unanticipated by the people who wanted massive government programs to lay fiber to every remote farmhouse.

Instead we had a 553-fold increase in wireless bandwidth deployed over this period–completely unexpected–that thrust the U.S. into the world lead again in communications. It shows these upside surprises that are the essence of capital creativity. Creativity always comes as a surprise to us. If it didn’t, we wouldn’t need it, and socialism would work. You could plan these great new technologies.

SF: You called them “teleputers” years ago. Now we call them smartphones, tablets, iPads.

GG: I always said that your computer would not be a desktop machine; it would be as mobile as your watch, as personal as your wallet. It would recognize speech. It would navigate streets. It might not do windows, but it would do doors–open doors to your future. And these teleputers are really the force driving this massive global rollout of wireless bandwidth, which was pioneered in the U.S.

SF: Let’s start with the thing called cloud computing, which I guess you’ve pointed out as Bell’s corollary to Moore’s Law.

GG: Yeah. Gordon Bell, who was one of the great figures of Digital Equipment and is now at Microsoft, propounded Bell’s Law, which is sort of a corollary of Moore’s Law that the number of transistors on a chip doubles every 18 months or so. And he projected this into Bell’s Law: Every ten years you get a hundredfold increase in computing capabilities. And this enables and requires a fundamental change in computer architectures. We’re seeing it today in the rise of cloud computing. As Eric Schmidt said, when the back plane of your computer runs more slowly than the network, the computer hollows out and distributes itself across the network. And that’s essentially what is under way today, where the actual computing is almost never done or rarely done in the device that you have in your hand or on your desk. . . .

What it means is that computing power gravitates to its optimal point geographically. And that’s the advent of cloud computing. And it’s resulted in an efflorescence of creativity and computer architectures, because everything now has to run at the speed of fiber optics, which is the speed of light.

SF: What are some of the companies that you feel are in the forefront of this transformation?

GG: There are several in Israel because Israel’s really genius under the gun. EZChip is one, a wonderful company that’s completely in the fiber-speed paradigm. In the U.S. there’s a company called NetLogic, which raises the fiber-speed paradigm from just switching packets across the network to actual deep-packet inspection. They have knowledge processors that are crucial in this development of deep-packet inspection, which entails looking at the contents of packets at millions of packets a second and collectively trillions of packets a second. This is a major frontier in the world computer industry.

SF: When you say Middle East, people think oil. You’ve made the point that Israel, with its brains and what it’s doing in high technology, is really a functional part of the U.S. economy, which is where the real value is.

GG:Israel has become a new Silicon Valley, just as our own Silicon Valley gets paled over by green goo. [It] is moving to the forefront in developing new technologies based on fundamental advances. And these technologies instantly propagate to the U.S. So Israel is a substitute for a somewhat temporarily declining Silicon Valley. . . . It’s our farm system.

SF: Let’s hit on a couple of other areas where you see enormous creativity. Interactive video, video teleconferencing and the like. You feel it’s just exploded in terms of technology.

GG: Well, this is absolutely crucial. And this will require another transformation of the existing Internet as great as the transformation from the telegraph to the public switch telephone network 50 years ago or more. That created this great public switch telephone network that could deal with voice.

Now we have this vast data-oriented Internet that has to be upgraded to do interactive, full-motion, even 3-D video. And that’s like the transformation to voice. It will require a new network, a completely interactive fiber-speed network. That’s why I’m focusing on fiber-speed technologies and the new architectures, new computer architectures that are indispensable to achieve this level of performance.

SF: And what are the companies you’re watching?

GG: Well, cloud computing–the immediate field is moving up to layer five, which is called sessions. To conduct voice or video sessions across the network in real time, you need to interact between all sorts of different kinds of networks.

And this requires entities called session border controllers, which I think resemble routers in their impact. . . . Companies like Acme Packet and Audio Codes (another Israeli one, and there are lots of others) are doing that. That entails deep-packet inspection, because if you’re doing all these things, all different networks across the world, you want to know what the content is of the various packets that are coming to you to make sure they aren’t part of some cyberattack or whatever. That’s why I like companies that do deep-packet inspection, including NetLogic. And Cavium also does chips for that purpose. These chips are going to be increasingly in demand as time passes.

SF: Another area of creativity you’ve referenced in the past, [once full] of hype, now really seems to be perhaps coming into its own: nanotechnology.

GG: Well, nanotechnology was full of hype at a time when they said, “Oh, we’ve got carbon nanotubes. They’re 100 times stronger than steel, and they have all these wonderful characteristics. And we’ll use them to make memory cells or new kinds of transistors.”

In other words, they were trying to retrofit this radically new capability into the old digital computer model. The fact is, nanotubes do all kinds of unique things, and they won’t prevail until those unique potentialities are explored. The one that I’ve invested in myself, a company called Seldon Technologies up in Windsor, Vt., uses carbon nanotubes to make a straw that you can stick into a septic tank and drink potable water out of it.

SF: Another area you liked in nanotechnology is building and construction materials.

GG: The one I invested in was called iCrete. And actually Gary Winnick was a leading investor and leader of iCrete, which makes concrete that’s ten times stronger. It enabled the Freedom Tower to get off the ground.

It’s beloved of Frank Gehry. It’s a new way to make concrete that is a fundamentally different chemical binding that yields concrete ten times more durable and more cost-effective and thus uses less energy in making a building of a particular strength.

SF: You’ve referred to many venture capitalists in California and elsewhere as welfare pimps, loony-bin politicians. What in the world has happened? Are they mistaking Moore’s Law for what you can do with solar panels and energy, and then getting addicted to government subsidies?

GG: Venture capital is absolutely central to the future of the American economy. It’s radically less than 1% of total GDP, and yet the companies it supports currently constitute close to 20% of GDP, maybe more now.

It’s just catalytic seminal capital that’s absolutely crucial. And that’s why the worst development in the U.S., in my view, in the last few years and at least on the private side, is venture capitalists becoming poverty pimps.

They aren’t any longer generating new wealth. They’re angling to get part of your wealth and my wealth to support their green dreams of medieval energy sources like windmills.

The idea that the government needs, today, to make a major new investment in the name of progress in trains or in solar power or in windmills is a parody of creative destruction of Schumpeterian capitalism.

SF: I call it a bridge to the 19th century.

GG: Solar panels are useful in many niches and solar energy is valuable. But as a replacement for the grid or a replacement for the massive amounts of power needed to fuel electric cars or whatever it is, it’s just a joke.